The US GDP growth surprised everyone - May 01, 2019

The US GDP growth surprised everyone

The US economy’s growth was surprisingly strong: GDP saw a 3.2% boost this quarter. Why is that so surprising? Most analysts only expected to see a 2.3% growth. Although this is good news, the growth is based on some volatile factors. Still, besides the American stock markets, gross domestic product made a comeback too.

Gross domestic product in the US topped all expectations in the first quarter. Analysts polled by MarketWatch and Bloomberg both expected a growth around 2.3% but it was well above that. Data published by the Commerce Department on Friday stated that GDP expanded by 3.2% between January and March.

It’s a good surprise…

The growth was not only unexpected, it was also the first GDP acceleration since the middle of 2018, and the highest jump since 2013. This was especially good news for the Trump-cabinet. It’s no surprise that the President of the United States was quick to boast on Twitter about the results:

As Trump mentions, inflation did help the growth, and Fed’s patience with interest rate hikes may also have contributed to the good results. (Although Fed may bring a surprise rate cut today, which could stir things up on the markets.) The most important reason behind the growth however was growing inventories and trade.

…but it’s not a perfect situation

Inventories and trade are rather volatile components, however. They can fall in the second quarter of the year. Why is that a problem? Other parts of the production weren’t as strong. As MarketWatch points out perfectly: “Offsetting these gains, consumer spending decelerated to a 1.2% gain, the slowest increase in a year.”

GDP: % change from preceding quarter

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Business and real estate investments were also slower than before. These facts are clouding the otherwise great news. Most analysts believe that consumer spending and business investments should find new strength to keep GDP going longer. If that doesn’t happen, the great jump of Q1 may evaporate during the rest of the year.

Stocks are doing good, though

Stocks are still going strong (albeit slower), though. They also saw a minor jump last Friday, when GDP data was announced. This comes after the record-breaking performance of S&P 500 in the first quarter. (See: S&P 500 had its best Q1 in 20 years.)

S&P 500's rise between January-April 2019

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Remember: at the beginning of the year, Innovative Securities and others expected a growth on the stock markets. Why? Many believed the US economy is healthy in general but that’s not reflected in the stock market. (See: 2019 may be the year of investments.) Seeing the GDP data may give a further boost to these beliefs, but only if those clouds are cleared in time.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.